The recently enacted 2013-15 Wisconsin state budget authorizes the state to spend $70.38 billion over the next two years, including $2.05 billion from new borrowing. By year and excluding bonding, spending rises 3.5% in 2014 and 2.4% in 2015. State general fund expenditures total $30.22 billion, and rise 3.5% and 3.7%, respectively over the next two years. General fund spending exceeds revenues in both years, drawing down reserves from $705.3 billion to $192.1 billion and creating a $231 million structural imbalance heading into 2015-17.

Dale J. Knapp or Todd A. Berry608-241-9789wistax@wistax.org

New State Budget Continues Decade-Long Shift in Priorities

Medicaid Growth Takes Precedence Over Education, Local Aid

MADISON—State general fund support for Medicaid, the federal-state health insurance program for low-income and disabled residents, will increase an average of 8.7% per year over the next two years compared to 2.2% for schools and 0.5% for county and municipal shared revenues. These numbers illustrate what has been a decade-long shift in state priorities from local assistance to Medicaid. A new report from the Wisconsin Taxpayers Alliance (WISTAX), "Window on the Wisconsin State Budget," is a citizen’s guide to the new 2013-15 state budget that details this priority shift, as well as describing the budget process, spending patterns, and several unresolved issues.

Due to the large increases, Medicaid expenditures will be 15.1% of total general fund spending during 2013-15, a record high and up from an average of about 10% during 1985-2003. At the same time, K-12 school aids will comprise only one-third of general fund spending during 2013-15, the lowest percentage since 1996, the year before the state committed to funding two-thirds of school costs. Shared revenues to municipalities and counties accounted for 12.4% of spending in 1996, but will be less than 6.0% of expenditures in 2015, WISTAX said. In broader terms, local assistance will be less than 50% of state general fund spending in each of the next two years; it averaged 58% during 1985-2005.

While Medicaid is staking claim to the largest increase in spending, general fund dollars are also funding transportation, a relatively new phenomenon. The budget shifts $213.7 million from the general fund and $44.5 million from the petroleum inspection fund to pay for transportation needs. It also pays for $200 million in transportation bonding with general fund revenues. These are dollars that, in the past, would have funded schools and local aid, among other programs.

The transportation borrowing highlights a third trend that has developed over the past decade—increased use of debt. The new budget authorizes an additional $2.05 billion in borrowing, with $1.64 billion of it paid for with general fund revenues. Debt paid with general fund dollars tripled between 1999 and 2012. Debt service is expected to claim 5.26% of general fund dollars in 2014 and 4.88% in 2015. The state’s historical target is 4%.

Yet another choice involving priorities and tradeoffs was tax cuts vs. budget balances. In addition to many small changes, lawmakers reduced income tax rates across the board, resulting in a $678.2 million tax cut over two years. Tax revenues are expected to fall 0.5% in 2014 and rise 3.6% in 2015. However, with general fund spending rising 3.5% to $14.84 billion in 2014 and another 3.7% to $15.39 billion in 2015, some of the additional spending is paid for by drawing down state reserves. The 2013-14 fiscal year opens with reserves of more than $700 million. By June 2015, reserves are expected to be $192.1 million. In both years of the biennium, state general fund spending exceeds revenues, resulting in a $231 million structural imbalance heading into the next biennium.

One final decision this state budget made is how to fund K-12 education. The budget provides an additional $276.1 million for traditional K-12 schools during 2013-15. However, it also expands the state’s parental school choice (Choice) program from Milwaukee and Racine to the rest of the state, and increases the per student payment for students attending Choice or independent charter schools. Lawmakers allocated an additional $87 million to fund these programs.

A free copy of The Wisconsin Taxpayer magazine, "Window on the Wisconsin State Budget," is available by visiting www.wistax.org; emailing wistax@wistax.org; calling 608.241.9789; or writing WISTAX at 401 North Lawn Ave., Madison, WI 53704-5033.